Question

a man invests a total of 5000 in a bank account that yields 5% interest compound monthly. how much will it be worth after 6 years?

Answer 1

Answer:

  6745.09

Step-by-step explanation:

If we assume the nominal annual interest rate is 5%, then the future value after 6 years is ...

  FV = P(1 +r/12)^(12·t)

for P = 5000, r = .05, t = 6.

Doing the arithmetic, we get ...

  FV = 5000(1 +.05/12)^(12·6) ≈ 6745.09

After 6 years, the bank account will be worth 6745.09.

_____

We made a comment about the interest rate, because the annual yield is about 5.116%. If the annual yield is actually 5%, then the account value is lower: $6700.48. (Monthly compounding is irrelevant in that case, because it is already figured into the yield.)

Usually, the wording would be that the account earns 5% interest compounded monthly.